Craft beer cheaper without 3 tier system?

You think it is all supply/demand pricing?

Then how would you explain that the lowest priced craft beer is from the largest breweries (Sierra Nevada, Sam Adams, Lagunitas, Stone, New Belgium) that have the means to lower production and transportation costs through economies of scale?

 

Too vague. Name some example, particularly focusing on one where the economists agree it is/was a free market.

 

I would never advocate that a brewer had to stay with its distributor. If the distributors lost breweries doing business with them then they would adjust their business model or go out of business. It happens all the time in many industries. If you're not making money anymore then you do something else.

 

Did I say it was supply/demand pricing? Different companies have different strategies.

 

Hopefully someone from the UK with better info can chime in, but I believe Tied Houses are still a major issue there. That is the one of the major reasons (besides cask conditioning) behind the CAMRA movement.
http://www.camra.org.uk/en_US/pubco-reform1

 

I don't have to prove that freer markets (if not a pure free market) lead to lower prices, you have to prove that they don't. Country after country after country has seen options increase and prices decrease once a centralized command economy is deregulated.

There are always exceptions to rules, such as natural monopolies, but I don't see any inherent reason that beer would be an exception to the premise that freer market choices (if you don't think its a pure free market) will lead to lower prices in the long run.

 

Wrong. You have to prove that a free market existed.

Edit: you jumped in with the claim history is replete with examples of free markets. Freeer doesn't count.

 

If your point is that there is not a pure free market, then I agree.

 

But you made the blanket statement that it's not cost+.

 

A few thoughts from a smaller/medium brewery point of view on the 3 tier system as it is a complex issue.
* The 3 tier system increases access to craft beer and customer choices.

* More breweries have access to distribute with the 3-tier system as it works in most states today then they would without the 3 tier system. Look to other parts of the world where a company owns the entire process of making beer, distributing beer and the bar. We don't have that in the U.S. because of the 3 tier system.

* In states that allow self-distribution a brewery has the choice to either use distributors or do it themselves. In most states with self distribution there is some cap on the amount a brewer can distribute in order to complement the 3-tier system. (our state calls this the small brewery limit) This option is beneficial to new breweries that might not be able to partner with a distributor until they have a track record. Obviously self-distribution is not allowed in all states but it really should be even with a cap as it creates increased access to markets for small breweries.

Personally we have always distributed by using a distribution partner even though we could self-distribute. Our reasoning was doing the math on cost of distribution, which includes equipment, trucks, and many more employees we thought it was just a better business model to use a distributor. We also wanted to focus on beer and pick a distribution partner who could help us manage delivery, logistics, and account management. From our point of view the 3-tier system is great as we get to focus on making the best beer we can and partner with distributors who can focus on making sure our products get to people to enjoy in the closest to brewery fresh possible.

So, in some cases the 3 tier system might make beer more expensive but in others it might make it less expensive. There is not a single answer.

P.S. Also loved the chart showing differences in tax rates from state to state by @Sixpoint

 

So it's then a choice as to which regulations are in place and why.

 

Do you know what cost+ is? It is pricing based strictly on cost plus margin. There are plenty of pricing strategies besides that ticket to bankruptcy.

 

My understanding (I am willing to be corrected) is that in the late 19th century, tied houses may have resulted in lower prices, but at the expense of choice/quality for the consumer.

 

Nailed it!

 

Yes, I understand what it means. I gave an example of evidence that for a large portion of the craft beer market - the signs point to the fact that the brewers cost is directly related to consumer price, to counter your statement that craft beer is not priced that way.

I agree that some niche breweries appear to be taking advantage of scarcity and popularity, but that's not the majority of the market.

 

I can't imagine not being able to buy beer/wine/spirits at the grocery and convenience stores. I don't understand why lawmakers in PA would be happy with that antiquated system. And state owned and run liquor stores? Talk about inappropriate function for the government! But I guess all things take on a life of their own, once in place an industry forms around it and that makes it hard to change.

 

I agree with that. The majority of the market appears to be value priced.

 

On the beer side, lawmakers are happy at the beer distributor lobby group that puts money in their pockets. On the liquor side, the lawmakers are happy at the state liquor store employee's union that puts money in their pockets. Lawmakers win, consumers and taxpayers lose.

 

Can you point to the posts in this thread where someone is "pro-Mandated Three Tier Law" or claims that without the laws the system would breakdown? As stated numerous times, self-distribution is legal in more than half the US states (more than 2/3 by my count), including such large craft-beer markets as NY, PA, OR, WA, MA, CA and CO. No one denies that the wholesale distribution tier exists and is strong in all those states - indeed, it has both helped create the craft market in those states and profited from it.

Brewpubs are legal in all states, rendering some of the old Tied House prohibitions obsolete. Franchise laws, enacted 40 years after Repeal, but in an era when distributors were both smaller than the breweries they dealt with and typically had contracts with much fewer breweries, are being rewritten (<not fast enough, due to the political power of the NBWA and the large multi-state distributor chains).

My posts, and many others', are only trying to note that some of the claims against the current (and mostly voluntary) wholesale distribution system are incorrect - there are simply many positive aspects of the system. Nor would eliminating the mandatory 3T laws in the minority of the states create some panacea of cheap and plentiful "craft" beer everywhere and AB and MC market share reduced to their under 10% of the 1950s. Although with 4000 breweries existing under current laws, one does wonder what more do some people want? At some point, for "craft" to grow beyond its small share, it will have to appeal to the over 2/3 of the market that is still very satisfied drinking AAL's and "Light" beer - the fact that higher priced Mexican beer has grown faster than "craft" in the craft era is evidence that it is not simply that some people drink Old Milwaukee Light simply because they don't want to spend the money to buy SNPA.

Growing the craft segment is not going to happen simply by more self-distribution or even "cheaper" craft beer.

Also, "be careful of what you wish for" - as noted, the new owners of AB has been aggressive in buying more AB distributorships where legal (they own about 2 dozen of AB's 500 distributors, but they account for about 10% of all AB sales - which is the figure they hope to maintain, according to AB CEO João Castro Neves.) Most surprising is that AB, via their purchase of some the west coast "craft" breweries, now owns brewpubs - so they have a foothold in all 3 tiers in some states.

 

The "Tied House" prohibitions written into the post-Repeal FAA Act (the main portion of what collectively are referred to as the "Three Tier Laws" that is Federally mandated) were not aimed at improving consumer choice but due to:

The Tied House laws as they exist today in the current FAA Act are primarily concerned with bribery and other unfair and corrupt practices rather than direct ownership by brewers of retailers and wholesalers.

As for "cheaper" beer, it's safe to say that alcohol beverage laws in the US, particularly the Federal and state excise taxes, were seldom written to encourage consumption by making beer cheaper, but they often did blatantly lean to promote beer, and sometimes wine, over spirits. The existence of "Control States" (it ain't just Pennsylvania), different retail and wholesale licenses for beer/wine than for spirits, much higher taxes on the latter, abv limits, etc., reveal that. But, post-Repeal, even beer was taxed at a much higher rate than today, as far as the percentage of either brewers' costs or the final consumer price is concerned.

The post-Repeal 10-15¢ bottle of beer's price included 1.8¢ of Federal Excise Tax (@$6/bbl).
Today's $1-2 (and up) bottle of beer's price includes 2-5¢ Federal Excise Tax (@ $7 or $18/bbl).

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